Airlines Should Decide on How They Structure Cargo Rates and Surcharges: AAPA

16. February 2015

Last month's decision by Emirates and Qatar Airways to introduce all-in-one cargo rates and abolish fuel-, security- or other surcharges - which was followed this week by a more or less
similar decision by IAG Cargo to switch to an all-in-one rate, has been widely welcomed by freight forwarder associations, including FIATA, BIFA, New Zealand's CBAFF and Clecat, as well as the
European Shippers Council (ECS).

AAPA’s Andrew Herdman

However, other airlines around the world have been slow to follow, despite the fact that the end-users of main-deck and belly capacity - the shippers - have become increasingly vocal about their
frustration and anger due to the fact that, following the spectacular drop in oil prices in the past few months, fuel surcharges have remained stubbornly high despite the significant drop in jet
fuel costs which have dropped by around 45% between July 2014 and January 2015.

Risk of collusion charges
Understandably, trade associations such as IATA and the Association of Asia Pacific Airlines (AAPA), have been reluctant to comment on pricing policies because of the inherent risk of facing
collusion charges.

The ongoing legal cases initiated by government organizations and individual parties, such as the recent action by Deutsche Bahn-Schenker to again take airlines to court for price-fixing, have
only heightened the airlines' concern about collusion and their reluctance to discuss rates and surcharges.

In an interview with CargoForwarder Global, AAPA's director general, Andrew Herdman stated that "from a trade association's standpoint, it's not appropriate for us to comment about pricing
practices of our members, because of obvious competition and anti-trust implications."

"It's really up to every individual airline how they structure their rates and surcharges," he said, adding that in some countries the fuel surcharges themselves are subject to government
approval and filing, which is further complicating matters.

Fuel fluctuation will persist
Mr Herdman acknowledged that airlines had been quick to raise fuel surcharges following hikes in fuel prices in the past right away, while reductions, as a result of the recent drop in fuel, were
only slowly being implemented. "The surcharges have been transferring some risk for the airlines and have insulated them against fuel price fluctuations, but no matter how you structure your
rates, these fluctuations will persist, even though we are seeing a low fuel price at the moment,” he said.

He pointed out that, over the years, the cargo community had accepted the freight rates plus surcharges and, albeit a bit complicated, forwarders and shippers had been able to live with the
present rate structures.

"Even if you abandon the surcharges and start offering an all-in-one rate system, you still need to have a mechanism in place in case the fuel prices start rising again," Herdman stated, adding
that like the passenger side, cargo customers were quite capable of establishing the exact transportation costs. "The market keeps them ("the airlines") honest, Herdman concluded.